1. International Business: Actions Entry mode (I)
Business College
School of Management

2. Aims of the Session:
To understand different forms of internationalisation and market entry.
To consider the benefits and problems of firm internationalisation from different perspectives. 2

3. Key Questions How do organisations internationalise?
What are the advantages and disadvantages of various types of market entry?

4. Recap We examined the key IB theories last week.
In this week, we will look at foreign market entry modes and the advantages and disadvantages associated with them.

5. Modes of Entry
Organisations contemplating foreign expansion must consider the following:
Which foreign market(s) to enter
Timing of entry
What form of entry to use
What scale of entry to establish
Which mode of entry to adopt

6. Entry Decision Making Under Uncertainty: Trade-off Between Flexibility and Commitment
Timing: When is a good time to enter?
Potential gain from waiting
Cost of delay
Scale of entry
Small scale: Establish a foothold to learn
Large scale: Acquire first mover advantage
Speed of expansion: How fast to grow?
Value of learning
Preemption of competitors
Constraints of internal resources
Mode
Some modes have more flexibility embedded
Some modes reduce resource requirements

7. Which Foreign Markets
The choice must be based on an assessment of a country’s degree of alignment with firm strategy and likely contribution to revenue and profit
The attractiveness of a country depends upon balancing the various associated benefits, costs, and risks
These relate to: customer identification, production capabilities, or financial opportunities
Benefits may relate to: market expansion, production flexibility, investment opportunity, etc.
Risks may be competitive, political, financial, etc.

8. Timing the Entry
‘First-mover advantages’ that may be derived from entering a market early:
Preempting rivals and capturing demand
Establishing a strong brand name
Building sales volume
Creating ‘switching costs’ for customers and clients
‘First-mover disadvantages’ may derive from:
Pioneering costs that early entrant incurs
Unanticipated political, legal, regulatory etc. risks
Additional costs of entry that may not be recouped before competition increases and profit margins decline

9. Scale of Entry
Large scale entry:
Involves ‘strategic commitment’ - a decision with long-term impact that is difficult to reverse
May lead rivals to rethink market entry
May prompt competitive response from existing players
Small scale entry:
Requires limited financial and other resource commitment
Provides time to learn about market
Reduces exposure to risk

10. Activity 1: International Market Choice
Considering concept of Timing/Scale/Speed, please return to the case of e-retail market in China and discuss potential success or failure of Walmart e-retail in China. Why China?

11. Choice of Market Entry Mode
Modes? Markets? Art? Science?

12. Complementarity of Resources
MNC’s Resources
Innovative capabilities
Advanced technology and know-how
Industry-specific marketing expertise
Organization structure and systems
Local Firm’s Resources
Imitating capabilities
Older technology and know-how
Country-specific marketing expertise
Country specific organization skills

13. MNC Customers Going it Alone: Export HOME COUNTRY HOST COUNTRY
Revenues
MNC
Customers
Export of Goods

14. When Is Export Appropriate?
Going it Alone: Export
Advantages
Low initial investment
Reach customers quickly
Complete control over production
Benefit of learning for future expansion
Disadvantages
Potential costs of trade barriers
Transportation cost
Tariffs and quotas
Foregoes potential location economies
Difficult to respond to customer needs well
When Is Export Appropriate?
Low trade barriers
Home location has cost advantage
Customization not crucial

15. Licensing of Technology
Licensing Agreement
HOME COUNTRY
HOST COUNTRY
Licensing of Technology
MNC
Local Firm
Fees and Royalties

16. When Is Licensing Appropriate?
Licensing Agreement
Advantages
Low initial investment
Avoids trade barriers
Potential for utilizing location economies
Access to local knowledge
Easier to respond to customer needs
Disadvantages
Lack of control over operations
Difficulty in transferring tacit knowledge
Negotiation of a transfer price
Monitoring transfer outcome
Potential for creating a competitor
When Is Licensing Appropriate?
Well codified knowledge
Strong property rights regime
Location advantage

17. Activity 2: Licensing Case Discussion
You and your team are the assistant to the CEO of a small textile firm that manufactures quality, premium-priced, stylish clothing (Italian Brand). The Italian CEO has decided to see what the opportunities are for exporting or licensing and has asked you and your team for advice as to the steps the company should take. What advice would you give the CEO?

18. MNE Local Firm Foreign Acquisition HOME COUNTRY HOST COUNTRY
Investment
MNE
Local Firm
Profit

19. When Is Acquisition Appropriate?
Foreign Acquisition
Advantages
Access to target’s local knowledge
Control over foreign operations
Control over own technology
Disadvantages
Uncertainty about target’s value
Difficulty in “absorbing” acquired assets
Infeasible if local market for corporate control is underdeveloped
When Is Acquisition Appropriate?
Developed market for corporate control
Acquirer has high “absorptive” capacity
High synergy

20. Equipment and technology
Compensation Trade
HOME COUNTRY
HOST COUNTRY
Equipment and technology
MNE
Local Firm
Output
Common reason: Local firm’s lack money to buy equipment
Economic benefits
Enhanced incentives for MNE to make sure that equipment works
MNE’s skills in marketing the products in its home country

21. Activity 3: Merger and Acquisition
Please watch this clip on international merger and acquisition
Then, list factors affecting the success of international merger and acquisitions.